The age of early retirement is over, the pensions minister has declared, as he
warned workers in their 30s that the government had no idea when they would
be able to retire.

Steve Webb said the growing numbers of people living into their 80s and 90s would leave taxpayers with a rising bill and meant “the sums” would never add up if people continued to retire in their 50s.

In future, increases in life expectancy will automatically trigger a rise in the state pension age, with most of the extra years of life to be spent working, he said.

Details of the coalition’s pension reforms will be published in the next few weeks, and will include a new flat rate state pension providing the elderly with “the minimum” they need.

Ministers are also planning to tell pensioners to use their savings to pay for their long-term care in old age.

According to official forecasts, the population of older people will rise dramatically over the coming years as a result of better healthcare and previously high birth rates in the post-war “baby boom” years.

The number of over 65s in England is expected to increase by 51 per cent over the next 20 years, while the numbers of those aged 85 and above will double by 2030.

Ministers accept that the trend will hugely increase the costs to the NHS, elderly care and state pensions systems.

Under the government’s plans, the state pension age for women will be brought into line with men at 65 in 2018 before rising to 66 by 2020 and 67 by 2028.

Mr Webb said that a new white paper would set out how the state pension age would be linked automatically to increases in life expectancy.

“People sometimes write to me who are aggrieved at our raising the state pension age,” Mr Webb told a House of Lords investigation into the ageing population.

“For us, if people are going to live on average to late 80s and beyond, retiring in late 50s is just never going to make the sums add up.

“I had a police officer who came to me the other day and complained that we had stopped him retiring at 52. We just can’t do this any more.”

Mr Webb said the coalition’s plans would ensure workers received enough notice about changes in the state pension age but would not commit the government too far into the future.

“If someone tells a 30 year old what their state pension age is going to be, they are lying,” he said.

The plans will allow some “flex” to take account of the fact that some parts of the country have not seen life expectancy increase as fast as others, he said.

Mr Webb suggested wealthier pensioners should be encouraged to downsize to smaller homes to use their assets to pay for old age.

“I certainly think there is a lot more that could be done on trading down, although this is incredibly sensitive territory,” he told the committee.

“Saying to someone, you have got all this housing wealth, the best way to release it is just to trade down trade down and move to a flat or something, you have to move out of the community you have been living in, is very difficult.”

Mr Webb said the government may need to review its employment policies to ensure older people who are out of work can find jobs. The Work Programme, which is designed to tackle long-term unemployment, contains no incentives on agencies to find jobs for older workers, he warned.

The coalition has also committed to capping the potentially “catastrophic” cost of long term care for elderly people in nursing homes.

Proposals are expected to be announced within weeks indicating the level of the maximum amount that frail and disabled adults face paying for their care before the state steps in. Pensioners could be expected to pay up to £75,000 of any care bills they incur, under the plan.

Norman Lamb, the care services minister, said pensioners would be advised to use their savings to buy care insurance. Pensioners could take a lower lump sum on retirement and opt for private care protection packages to cover the cost of care home bills up to the level of the cap, he said.

The insurance could also be used to “top up” the care home fees that the government will pay once people have reached the cap if pensioners want to buy better quality services than the state-funded minimum, he said.

Ministers outlined their plans for addressing the ageing population as experts and campaigners warned that pensioners would face a “hammer blow” from a new system for calculating inflation.

The Office for National Statistics will today reveal the results of a study that could lead to changes in the way the RPI measure of inflation is calculated.

Many economists expect the statisticians to introduce new rules that reduce RPI figures. A decision to retain the current rules would be a relief to pensioners.

Many private pension funds increase payments to pensioners every year in line with RPI inflation, meaning lower figures would result in smaller pensions.

Ros Altmann, the director-general of Saga said that reducing RPI would harm pensioners and savers.

Nigel Green, of the deVere financial consultancy, said: “It would be another hammer blow for pension holders who are still in schemes that offer RPI increases, as their annual pension increases would be slashed overnight.”